A shift from contracted to permanent jobs seems to be growing, despite one recruiter claiming a "resurgence" in IT contracting.

The illiquid state of the IT market is forcing contracting rates down, but some employers appear to be also converting contracting roles into permanent positions to cut their contracting bills further.

Employers and recruiters generally confirm a trend noted in this year's IDC Forecast for Management study of IT activity in 300 Australian and New Zealand organisations.

Study author Peter Hind said the 100 New Zealand respondents indicated contractors would drop from making up 15.5% of IT staff to 2.3%. Contractors, meanwhile, appear to be seeking more security in permanent posts.

Recruiter Robert Walters claims its contracting "resurgence" is due to organisations getting around head count freezes by taking on temporary staff with "specific skill sets that can be utilised for a specific time", particularly project managers with experience in software implementation. Global economic conditions have meanwhile forced an influx of contractors home to New Zealand, it says.

Auckland Regional Council CIO Tony Darby says the body does not use contractors as it did because "their rates are higher, especially [if used] through agencies", but he does acknowledge that "a few" contractors have been converted to permanent roles.

"You do it case-by-case. Eighty-five dollars an hour can be converted to $40 an hour and it allows you to try before you buy."

ASB Bank has 40 contractors out of 350 IT staff, but this too is not what it was.

IT recruitment consultant Rachel Heathcote says the bank tries to use them "smarter" - for skills the bank does not have.

The ASB has taken on a few returnees from overseas, but she says they want permanent roles, and tend to be looking at lifestyle rather than pay rates.

"I have also noticed a few who called themselves 'dyed-in-the-wool' contractors saying they want to belong to an organisation and feel they have a career path. Things have changed since the days when contracting was the way to go," says Heathcote, a former Candle recruiter.

Fisher & Paykel Healthcare says it has not used contractors since an ERP implementation in 1997.

"We have the experts here," says group systems manager Angela Whittle.

ITANZ executive director Jim O'Neill says independent contractors are struggling and believes there have been dramatic reductions in industry rates.

He says members have told him that project managers are charging at $40 an hour when they might have asked $120 an hour some time ago.

"There is not much IT work out there. The amount of project work has reduced significantly. There are probably more people looking for that sort of work than there are jobs to do," he says.

O'Neill too believes contractors are seeking security in permanent roles, though he says returnees with cash in the bank will accept contracting work until a permanent post turns up.

Recruiter Candle sees no evidence of contracting a resurgence, saying the market is stable and better than three months ago, but it has shrunk to "20% of two years ago".

"It's good, but not brilliant and pay rates are staying the same. But certainly the market has been depleted," says Auckland general manager Christine Fitchew.

Boutique recruiter IT Maniacs says companies cannot sustain the contracting rates, and not just the whole rate, but also the agency mark-up.

Top-flight contractors will always get work, says director Sarah Lee, but most of her firm's contractors are looking at permanent roles.

"They want security in a long-term role. They have mortgages to pay."

Independent consultant and Computerworld columnist Bryan Dollery says claims of a contracting resurgence are "severely misleading". There is some growth in fixed-term positions, he says, but those doing them are unhappily performing these roles for the same rate as a permanent job.

Dollery believes Robert Walters is using its statement to tell employers they can have talented contractors for the same price as permanents.

"You [employers] can shaft the bastards who have been shafting you for years," is Dollery's interpretation of what the agency is saying.

Richard Manthel of Robert Walters accepts the contracting market is not what it was but, based on his agency's business, believes it is "improving". People are seeking stability, he says, "but I don't think anybody has been shafted".